We have a 5-unit commercial building and are thinking of selling in the next 6 months. We currently have a vacancy. Should we reduce the rent by $500/month to get it filled right away, or hold out for the same rent we’re getting from the other units? – CONTEMPLATING
DEAR CONTEMPLATING: It’s tempting to fill your commercial space at a reduced rate. But did you know you could be costing yourself $85,000-100,000 when it comes time to sell? Most commercial and investment properties are valued on what they earn and offering cut-rate commercial rent could end up costing you dearly.
A property is like a GIC. It offers a fixed rate of return over a set period of time. Drop your rent to fill the space, and the property will be earning $6000 less per year ($500/month x 12 months). If the property’s cap rate (expected rate of return) is estimated at about 7 percent, the value of your commercial property is reduced by about $85,000. At a 6 percent cap rate, it would cost you about $100,000 when it comes time to sell. Ouch!
My agent listed my home almost 30 days ago and told me this was a hot market. Why isn’t it selling? — DISAPPOINTED
DEAR DISAPPOINTED: In a hot market like this, a property that sits probably has an issue with price. Buyers shop around before they make a purchase, regardless of what the market is doing, and if your home is not priced correctly, it’s less likely to sell.
Thirty days into the process, you should be sitting down with your Realtor to review comparable properties and recent sales in your neighbourhood. This will help to confirm that you’re in the right price range. Missing the pricing mark, even by a few percent, can cause buyers to step away.
In a competitive market, buyers may assume they’ll have to pay over asking to get the home they want. Assess your home with this in mind, and you may find you’re pushing the asking price beyond what’s reasonable from a buyer’s perspective.
We’ve tried to buy a few different homes in bidding wars. The most recent sold for $14,000 less than we offered and we only had a 3-day condition. What happened to “money talks”? – FRUSTRATED
DEAR FRUSTRATED: Sure, money talks…but put yourself in the seller’s shoes and you’ll be able to see why your conditional offer may hold less weight than a firm offer, even if it’s for more money.
From the seller’s point of view, a firm offer is like a bag of cash: it’s a commitment to buy the home and makes the sale a done deal. On the other hand, your conditional offer is like an IOU. It’s a promise to buy, but only if specific conditions are met.
As a seller weighs their options, it can take a lot to convince them that your “promise” is worth the risk, especially when they have a firm offer in hand. How much is “a lot”? Well, that’s the million-dollar question. Each buyer and circumstance is different, and the nature of your conditions, your qualifications as a buyer and the purchase price can all affect the outcome. If you’re nervous about making a firm offer, ask your agent if you might be able to arrange an inspection of the home ahead of time.